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IN RE LEFKOWITZ

May 14, 1991

IN RE PROCEEDING TO COMPEL ADRIENNE M. LEFKOWITZ, AS PRELIMINARY EXECUTRIX OF THE ESTATE OF NICHOLAS MARSH (A/K/A NICHOLAS
v.
MARSH), DECEASED, AND/OR ARCADIA TRADING COMPANY, LIMITED AND/OR BAY NOVELTY AND INSPECTION COMPANY, LIMITED, TO TURN OVER THE DEATH BENEFITS OF CERTAIN RETIREMENT PLANS TO THE DECEDENT'S SURVIVING SPOUSE, IRENE B. MARSH. ADRIENNE M. LEFKOWITZ, PLAINTIFF, V. ARCADIA TRADING COMPANY LIMITED DEFINED BENEFIT PENSION PLAN, BAY NOVELTY AND INSPECTION COMPANY LIMITED DEFINED BENEFIT PENSION PLAN, ARCADIA TRADING COMPANY LIMITED PENSION TRUST, BONUS CONSULTANTS LIMITED, THE COMMITTEE OF THE ARCADIA TRADING COMPANY LIMITED DEFINED BENEFIT PENSION PLAN, THE COMMITTEE OF THE BAY NOVELTY AND INSPECTION COMPANY LIMITED DEFINED BENEFIT PENSION PLAN, ARCADIA TRADING COMPANY, LIMITED, BAY NOVELTY AND INSPECTION COMPANY LIMITED AND THE BANK OF NEW YORK, AS PRELIMINARY EXECUTOR OF THE ESTATE OF IRENE B. MARSH, DEFENDANTS.



The opinion of the court was delivered by: Kevin Thomas Duffy, District Judge.

  MEMORANDUM & ORDER

Plaintiff Adrienne M. Lefkowitz originally commenced this action against her mother Irene B. Marsh to recover death benefits from two defined benefit pension plans (collectively "the Plans") adopted by two foreign companies, Arcadia Trading Company Limited ("Arcadia") and Bay Novelty and Inspection Company Limited ("Bay Novelty") in which her father Nicholas V. Marsh was the sole participant, naming Lefkowitz as the sole beneficiary. By Order to Show Cause and petition dated February 23, 1990, Mrs. Marsh commenced a turnover proceeding in Estate of Nicholas V. Marsh, File no. 1980/88, Surrogate's Court, New York County, seeking payment of death benefits on account of her late husband's participation in the two Plans during his life.*fn1 On March 14, 1990, Lefkowitz removed that proceeding to this court where it was assigned civil docket number 90 Civ. 1716 and Mrs. Marsh promptly moved to remand the action back to the Surrogate's Court. Mrs. Marsh died on May 13, 1990, three days before my decision was rendered retaining jurisdiction and denying her motion to remand. After Mrs. Marsh died, I allowed The Bank of New York to be named as preliminary Executor of the Estate of Irene B. Marsh and it was substituted as the proper party defendant in place of Mrs. Marsh ("Estate of Marsh").

In the interim, on April 6, 1990, Lefkowitz filed the instant complaint with this court, which added certain parties not named and/or properly served in the previous case. I accepted this complaint, 90 Civ. 2373, as related to 90 Civ. 1716, but the cases were never consolidated. In this latest action, Lefkowitz seeks the same benefits as sought by the Estate of Mrs. Marsh. The parties now cross-move pursuant to Fed.R.Civ.P. 56 for summary judgment.*fn2 Additionally, Lefkowitz seeks a declaratory judgment on the applicability of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001-1461 to the two foreign corporate benefits plans at bar.*fn3

STATEMENT OF FACTS

The Plans properly filed a Form 5300, an Application for Determination for Defined Benefit Plan, with the United States Internal Revenue Service ("IRS"), seeking determinations that the Plans as drafted met the requirements of the Internal Revenue Code ("IRC"), 26 U.S.C. § 401 entitled Qualified Pension, Profit-Sharing, and Stock Bonus Plans, and § 501 entitled Exception from Tax on Corporations, Certain Trusts, etc. Subsequently, the IRS issued such determination letters for tax qualification to each of the Plans. Lefkowitz Motion, Exh. 3.

On May 26, 1983, Mr. and Mrs. Marsh executed mutual wills. Concurrently, they entered into a separate written agreement ("the Agreement"), pursuant to which neither one would "revoke his or her Will" or "execute a new Will, a Codicil or a trust agreement disposing of his or her property at death. . . ." Lefkowitz Motion, Exh. 14.

Each of the Plans had filed with the IRS a Notice of Intent to Terminate as of December 31, 1984. Lefkowitz Motion, Exh. 9. For tax purposes, "termination" of the Plans was deemed effective by the IRS as of December 31, 1984 and the IRS found no adverse effects from such termination on the Plans qualified tax status. Lefkowitz Motion, Exh. 10.

In May 1986, Mr. Marsh suffered a paralyzing stroke after which Mrs. Marsh sought to and did bar him from their home. Mrs. Marsh then commenced a divorce action in January 1987. Soon after the divorce action was commenced, Mr. Marsh named Lefkowitz as the beneficiary of the death benefits payable under each of the Plans. Lefkowitz Motion, Exh. 11. In August 1987, Mr. Marsh commenced his own divorce action against Mrs. Marsh, claiming abandonment. Lefkowitz Motion, Exh. 27. Mr. Marsh died on March 15, 1988. At the time of his death, neither divorce action had been adjudicated but Mrs. Marsh was still estranged from Mr. Marsh. On May 13, 1990, Mrs. Marsh died. Mr. and Mrs. Marsh had three adult daughters from that marriage, one of whom is Lefkowitz. Mr. Marsh had been estranged from another daughter for ten years prior to his death and from the third daughter from 1983 to 1986.

DISCUSSION

The gravamen of Lefkowitz's complaint is her claimed entitlement to be designated the proper and lawful beneficiary of death benefits accrued by her father from the Arcadia and Bay Novelty Plans, under which he was a sole participant. The Estate of Marsh, however, claims that, "pursuant to the Internal Revenue Code and other federal statutes," Mrs. Marsh was entitled to a certain spousal benefit entitled the qualified pre-retirement survivor annuity ("QPSA")*fn5 from the two Plans and that Mr. Marsh's purported designation of Lefkowitz, as a new beneficiary, was invalid. As such, the Estate of Marsh seeks to set aside the existing Lefkowitz designation and obtain QPSA benefits based on the application of Title I of ERISA.

After successfully removing this case from the Surrogate's Court, Lefkowitz now avers that the Plans at bar are not under the purview of ERISA for, although having a qualified tax status under the Internal Revenue Code, they are plans in foreign corporations not subject to the Labor sections of ERISA.*fn6 Lefkowitz acknowledges, however, that these Plans would be subject to regulation under ERISA if they were Plans set up and/or run in the United States pursuant to 29 U.S.C. § 1001-1461.*fn7

Employee benefit plans are subject to ERISA if they are established or maintained "by any employer engaged in commerce or in any industry or activity affecting commerce." 29 U.S.C. § 1003(a)(1). Certain plans, however, are exempt from ERISA, under Section 4(b) of Title I, 29 U.S.C. § 1003(b)(4). That section provides a limited exemption for a plan "maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens." There is no dispute that Mr. Marsh was a citizen of the United States, the Plans sought and obtained determinations from the IRS as to their "qualified status," the Plans were amended from time to time to remain qualified under the Tax Code, and Mr. Marsh was the sole participant and trustee of the Plans. Thus, the exemption clearly does not apply in the instant case.

Not only was the sole participant in the Plans a United States citizen, but Mr. Marsh availed himself of all of the concomitant ERISA tax benefits pursuant to Title II of the IRC. Indeed, if the Plans were not qualified plans, contributions to the Plans on behalf of Mr. Marsh would have been included in his gross income for the years in which contributions were made. Arcadia and Bay Novelty along with Marsh availed themselves of all of the privileges under the Internal Revenue Code. To claim, that a pension plan can selectively avail itself of the tax benefits of a qualified pension plan set forth in Title II, and yet not be subject to the rest of ERISA, primarily designed to protect the rights of employees to their benefits, ...


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